Wednesday, after a prolonged review, the U.K antitrust authority, the Competition Commission (“CC”) issued a provisional finding that the joint venture would unfairly restrict competition. Specifically, the CC believes, as currently defined, Project Kangaroo will lessen essential competition in the supply of UK TV Video on Demand programming.

In the official press statement (PDF), Peter Freeman, CC Chairman, said, “the evidence that we have seen tells us that domestic content is key to being able to offer strong competition to UKVOD’s proposed service. The parties control most of that content, putting them in a powerful position in relation to competitors and viewers. We think that it would be difficult to obtain content from third parties to match UKVOD’s offer in scale or attractiveness.

In this situation, UKVOD would have the ability and incentive to impose unfavorable terms when licensing domestic content to rival VOD providers. At the extreme, UKVOD might withhold content from its rivals altogether. Any reduction in access to content would be likely to impact unfavorably on viewers.”

The findings add to what has already been a difficult year for Project Kangaroo. In August, the deadline for regulatory review was pushed back until January, pushing back with it site’s planned launch date. In the beginning of November, the venture’s CEO Ashley Highfield resigned to become Microsoft’s VP of UK consumer and Online Business. Highfield, who previously ran the BBC’s future media and technology division, had only been at the helm since July.

One ray of light for Project Kangaroo is the fact that the CC’s new ruling is merely provisional and not final. Hearings are to be held later this month to discuss remedies and solutions. Project Kangaroo and its supporters will have an opportunity to make their case.

If a compromise isn’t reached Project Kangaroo’s launch could be blocked entirely. Though possible, that outcome is unlikely. In recent history, few of the CC’s rulings have resulted in outright blockages.